MCS ASSIGNMENT NO.

Case Study Grand Jean Company

SUBMITTED TO : Ms. SHONALI GUPTA

SUBMITTED BY YOGESH DUBEY MBA 3 RD SEM

1. How would you describe the goal(s) of the company as a whole? Is this, or are these, the same as the goal(s) of the companys marketing organization and the companys 25 managers of manufacturing plants? Explain. The main objective of the company is to increase profitability and achieve high growth, by selling as many pants as they can. The company is striving hard to achieve cost effectiveness and achieve high level of quality. But the goals of the companys marketing organization and companys 25 managers of manufacturing plant are different. The marketing division is treated as a Revenue Centre so the goal of the companys marketing organization is to maximize revenue and sell what is produced. They are evaluated on the basis of meeting the set sales unit and sales dollar targets. Also, they are responsible for making demand forecasts which are used to decide the production levels of each plant. Whereas, the manufacturing plant have the goal to just meet the budget figure and fulfill the quota allocated to each plant. Since they are considered as an expense center and there is no immediate monetary reward to compensate for increase in responsibilities or requirements, they are not concerned to achieve higher efficiency and thus, does not want to exceed the targets.

2. Evaluate the current management planning and control system for the manufacturing plants and the marketing departments. What are the strengths and weaknesses? Strengths

1. The company has 25 manufacturing executives with 20 contractors, a reliable and proven brand for 30 years working together to make pants. 2. The marketing department has 5 marketing vice presidents who work for various products manufactured by the company. 3. The company has used various measures like time and motion studies to determine the standard of production, production time, and allocates costs in the production.

Weaknesses

1. Lack of communication between different departments.

2. A flawed evaluation system. 3. Lack of proper MIS. 4.There is lack of staff for some departments as they continue to maintain 11:1 supervision ratio to achieve leadership excellence. 5.They are highly dependent on the outside independent contractors who provide for approximately one-third of the total pants sold by them.

3. One plant manager recommended that plants be operated as profit centers because it would overcome some of the problems discovered by Mia Packard and the case writer. This plant manager commented, [My] competitor is the nearby independent manufacturer that makes the same pants for Grand Jean as my plant makes. And this outsider might also make pants for Grand Jeans competitors. Because of the competitive market, only the best managed plants survive in this business. Therefore, like the outside companys manager I sho uld have bottom line responsibility and be rewarded accordingly. Do you agree or disagree with the profit center concept for Grand Jeans 25 manufacturing plants? How would this approach affect the plant managers decisions, performance, etc.? The manufacturing plants have the goal to just meet the budget figure and fulfill the quota allocated to each plant. There is no incentive to the manufacturing plants to exceed production. Rather, it makes the things difficult for them as they have to meet increased quota and have thus resorted to Hoarding of stock even if there is enough demand.Since they are considered as an expense center and there is no immediate monetary reward to compensate for increase in responsibilities or requirements, they are not motivated to achieve higher efficiency. It would be a good idea to convert the manufacturing plants to a profit center as that would increase the profitability of the company. The goal of the production team that way will be aligned with that of the entire organization. Since, the marketing department changes the forecast frequently, they can transfer this extra cost to the sales department if there is a variation at a short notice. Also due to intense competition from independent contractors, only the best plants will survive. Hence the plants need to be competitive. Also increase in production will help the company to be self-sufficient and will reduce their dependence on external contractors.

4. If Grand Jeans manufacturing plants were treated as profit centers, three alternatives were suggested for recording revenues for each plant i) Use the selling price recorded by Grand Jeans sales personnel for pants sold to retailers and distributors. ii) Use full standard manufacturing cost per unit plus a fair fixed percentage markup for gross profit. iii) Use the average contract price Grand Jean paid outside companies for making similar pant types. Evaluate these three alternatives. Which one would you recommend? Why is your selection the best one?

(1). Using selling price recorded by Grand Jeans sales personnel for pants sold to retailer and distributer will not leave the sales department with any margin. The Sales department would not earn any profits. Hence it is not a feasible option. Every department needs to generate revenue for its sustenance. (2). Using full standard manufacturing cost per unit plus a fair fixed percentage markup for gross profit method has the advantage that there is incentive for the manufacturing department to do well and to increase efficiency. There is a fixed percentage of the cost that the manufacturing unit will charge over and above the cost and that will be its gross profit. So, for every unit they produce and sell they get profit for it. This profit will make them work harder and attain more efficiency. Also as a profit center even if they produce more than what is their own companies requirement they may sell it to the market as contracted manufacturers and earn further profit as a Fair percentage of cost. But in this case there is nothing motivating for the employees to focus on keeping on cost of production as low as possible. Hence, this alternative has several advantages of motivation, but cost factor needs to be taken care of. (3). If we consider the option of the average contract price that Grand Jeans is paying to outside companies to get its product made that would give them the price range with very little margin to work with as the bargaining power of Grand Jeans is pretty high. Hence, this may lead to reduction in the quality so as to maintain a fair margin for themselves. This may in turn lead to increased number of rejections at the

customer end and may lead to reduction in brand value and loss of market share to the company. Considering the three alternatives given to us the best one would be the cost plus fixed margin.